Russia steps up race with Saudi Arabia to pipe more oil to China
BEIJING: Chinese oil refineries are gearing up to receive more Russian oil transported through an expanded Siberian pipeline network from January, likely cementing Russia’s position as China’s largest oil supplier in a close race with Saudi Arabia.
The planned ramp-up in pipeline supplies agreed in contracts signed in 2013 comes amid a pledge by producers to cut output to tighten global markets and illustrates the nip-and-tuck contest between the world’s top oil exporters, Russia and Saudi Arabia, for dominance in the biggest crude importer, China.
Russia’s top oil producer Rosneft said it is set to supply under government agreement 30 million tons of ESPO Blend crude to PetroChina in 2018, or 600,000 barrels per day (bpd), an increase of 50 percent from this year, after completion of the second East Siberia Pacific Ocean (ESPO) pipeline, which has a main spur to Chinese border town Mohe.
“Rosneft has enough resources to supply under all its existing contracts, including the planned increase of supplies to China by 10 million tons next year,” Rosneft said in a statement.
Top state oil firm PetroChina has designated three refineries in northeast China as the main receivers of Russian oil, with one of them undergoing an $880 million upgrade.
Liaoyang Petrochemical Corp, in Liaoning province, already a regular processor of Russian oil, is expected to double its refining capacity with the upgrade to 400,000 bpd by the end of 2018, said two refinery sources.
Rosneft’s plan to proceed with the contracted supplies comes despite a pledge by OPEC and other suppliers including Russia to cut oil output by around 1.8 million bpd between January this year and March 2018.
Rosneft’s new flows of piped oil will come as Saudi Arabia aims to secure a stake early next year in a Chinese refinery after years of negotiations and as Saudi Aramco prepares for its global IPO.
Financed by Beijing’s estimated $50 billion in loans to Moscow started last decade, Russia’s higher pipeline sales will lift its total crude sales to China to new highs after the country overtook Saudi Arabia for five months so far in 2017 as China’s top supplier.
Chinese customs data showed Russia supplied an average of 1.18 million bpd in the first seven months of 2017, versus Saudi Arabia’s 1.05 million bpd.
Suresh Sivanandam, of consultancy Wood Mackenzie, said the fresh pipeline supplies would offset part of China’s domestic production declines from aging oilfields in its northeast, and allow Russia to expand its market share in the world’s largest oil importer at the expense of OPEC.
But Riyadh is not giving in easily, with the Saudi energy minister vowing last month to finalize a deal with PetroChina early next year to invest in the Yunnan refinery in China’s southwest that started operations this past July.
That would help secure Aramco a share in crude supply starting in 2018 to the 260,000bpd plant that receives oil from a Myanmar port linked to Yunnan via a pipeline.